Business Glossary

interest that has accumulated between the most recent payment and the sale of a bond or other fixed-income security. At the time of sale, the buyer pays the seller the bond's price plus accrued interest, calculated by multiplying the coupon rate by the number of days that have elapsed since the last payment.

Accrued interest is also used in a real estate limited partnership when the seller of a building takes a lump sum in cash at the time of sale and gives a second mortgage for the remainder. If the rental income from the building does not cover the mortgage payments, the seller agrees to let the interest accrue until the building is sold to someone else. Accrued interest deals were curtailed by the 1984 tax act.

interest earned, though not credited or otherwise paid. Interest earned by a deposit account may be added to the account balance or paid by check. Bonds pay interest every six months, but interest is earned (accrued) every month. An investor buying a bond midway between interest payment dates must pay the seller any interest accrued from the last payment date up to, but not including, the settlement date.

interest earned but not yet paid for a period of time that has elapsed since the last interest payment.

interest that has been earned but not paid.

Example: If 6% interest is earned on a $100 deposit, then $6 of interest has accrued to the depositor.